City of Alexandria, VA
Online Reference 1: The Economy
National, State and Regional Economy
The economy continues to improve gradually. In a press release issued on December 14, the Federal Reserve issued a statement that “confirms that the economic recovery is continuing at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit….” In the Federal Reserve’s most recent re-estimate in November, it announced that it expects that real Gross Domestic Product (GDP) will increase by 3.0-3.6 percent in FY 2012.
It is likely that during the current quarter, the U.S. economy will move out of “recovery” mode and into “expansion” mode as the GDP will exceed its previous high reached in the 4th quarter of 2007. The graph below shows the components of GDP, indexed to 100, which allows a direct comparison to how various parts of the economy have fared since the economy last peaked in 2007.
Source: Bureau of Economic Analysis
The chart shows that the most important component of the economy, consumption, has changed little since late 2007 and its share of the economy remains around 70 percent. So, too, have State and Local Expenditures remained constant, though they’re likely to fall in upcoming quarters to be reported due to budget constraints. Federal investment and consumption expenditures have increased by almost 20 percent, while spending on commercial and residential construction is far lower than it was three years ago. Residential construction is just 62 percent of its level in 2007 and continued to decrease in the most recent quarter.
In December, Congress passed a tax bill extending most of the Bush era tax cuts and reducing social security payroll withholding by two percent through the end of 2011. In conjunction with the Federal Reserve’s program of quantitative easing designed to lower interest rates, the Federal government is actively stimulating the economy on both the fiscal and monetary side. However, long-term interest rates have increased recently, either due to optimism about economic growth or worries that the tax bill will add hundreds of billions of dollars to an already large federal budget deficit and increase inflationary pressures, or both. On average, the interest rate on a 30-year fixed rate mortgage has moved close to five percent. The price of a barrel of oil has also recently increased to $90, and the average price for a gallon of gasoline is around $3.00, which is unusually high for the winter. Increases in interest rates and the cost of gasoline are likely to slow economic growth.
The graph of the change in the Consumer Price Index shown below shows continued slow price inflation. However, the annual change in the Consumer Price Index in the DC Metro area increased by relatively more than the nation as a whole (1.6 percent vs. 1.1 percent.) The housing component makes up over 40 percent of the index, and the divergence may be due to the strong residential rental market in the Washington, DC area. This should help to push up the valuations of the multi-family housing sector which makes up around 13 percent of the City of Alexandria’s total real property assessments.
Source: Bureau of Labor Statistics
In November, the national unemployment rate ticked up to 9.8 percent from 9.6 percent one month earlier, while Virginia’s unemployment rate remained constant at 6.8 percent. Alexandria’s unemployment rate fell to 4.4 percent, now well under half the national average and less than two-thirds of Virginia’s.
Source: Bureau of Labor Statistics
The number of people employed in Alexandria through the second quarter 2010, fell three percent from one year earlier to the lowest level since 2004, before the Patent and Trademark Office opened. It should be noted that given the high level of federal government civilian and uniformed military employed in the City, and given how sometimes the federal government miscodes the jurisdiction of employment for its employees, that shifts in federal government employment such as PTO or Defense Department employees working at the Hoffman buildings may not be accurately reported in the Quarterly Census of Employment and Wages, which is collected and prepared by the state.
Source: Bureau of Labor Statistics
The graph below shows employment in Alexandria compared to the total labor force in Alexandria. On average over the last twenty years, there have been 110 people employed in the City for every hundred Alexandrians in the work force regardless of the place of employment. That means that for the last twenty years more people commuted into the City to work than commuted out of it. As a result of the Great Recession, for the first time in roughly twenty years, as of the 2nd quarter 2010, employment in Alexandria and the City’s labor force were roughly in alignment.
Source: Quarterly Census of Employment and Wages
The graph below tracks employment by sector since 1990. It indexes all employment sectors to 100 to make it easier to do a basic comparison between sectors. It is easy to see that the sectors that have increased the most in terms of number of jobs are Public Administration, in large part from the Patent and Trademark Office, and Professional and Other Services. The sector that has fared relatively less well is Retail.
The following chart shows average weekly salaries by each sector. As one can see, the long-term trend in the City is toward more jobs in higher paying sectors, and away from jobs in lower paying sectors.
Average Weekly Wage by Sector
Source: Quarterly Census Report of Employment and Wages
As shown in the graph below, the City’s retail sales have gained some traction since August.
The City’s transient lodging and meals tax collections also continue to be strong, as the following graph showing meals tax collections shows.
Source: Alexandria Finance Department
In its FY 2011 revenue projections the City projected approximately 3-4 percent growth in most economically sensitive revenues, so there should be few downside surprises when the City’s FY 2012 budget is proposed in February.
CY 2011 real estate assessments are also unlikely to reveal downside surprises and likely will be close to or slightly exceed the preliminary projections of a 1-2 percent increase estimated at the October 18 Council work session. That compares to a FY 2011 Approved Budget projection made last winter of a 4.5 percent decrease in CY 2011 assessments.
A three month moving average of new foreclosures in the city dipped in November compared to October. That may be related to the recent foreclosure moratorium announced by many lenders. There is also a slight seasonal pattern which tends to reduce the number of foreclosures during winter months.
Source: Alexandria Department of Real Estate Assessments
There was a green shoot in the commercial real estate market this month, as for the first time in nearly a year, there was a very modest uptick in Commercial Property new construction permits, attributable to a single permit.
Source: Department of Code Administration
Also, nationally, the American Institute of Architects Architectural Billings Index expanded in November to its highest level since December 2007. This is a leading indicator for new commercial real estate investment. According to the AIAA, there is an “approximate nine to twelve month lag time between architecture billings and construction spending.” We will be watching to see if the City’s commercial construction sector may begin to pull out of its slump by next summer.
Governor McDonnell’s amendments to the biennium budget
On December 17, Governor McDonnell introduced his amendments to the current 2010 -2012 biennium budget which began on July 1, 2010. The General Assembly will convene in January to review his proposed budget. In his presentation to the Joint Meeting of the Senate Finance, House Appropriations and House Finance Committees, he suggested that revenue projections were slightly stronger than expected, adding $133.9 million in FY 2011 and $149.1 million in FY 2012. That’s less than a one percent change to earlier projections. There were few implications to Alexandria’s budget other than changes to the local match rates for the Comprehensive Services Act (CSA) that could cost the City approximately $350,000 annually. The governor also proposed that State employees be required to pay five percent of the employee share of contributions to their defined benefit programs administered by the VRS effective July 1, 2011. He is also proposing this choice for teachers and local employees, as long as their governing bodies/school boards also give them a salary increase of three percent or more. (He is proposing such an increase for State employees). Staff will include additional details on this proposal in regular Legislative Update memos during the 2011 Session.